Wednesday, May 27, 2015

Short- and long-term implications of US-Cuba travel liberalization for Caribbean tourist destinations

My friend recently bought a vacation home on the Jamaican north coast and, as a result, we have been making the trek between MCO and Norman Manley Airport with some frequency. On my last trip over, I happened to have a window seat (a fate second only to having a middle seat) and noted the broad expanse of Cuba as we traversed its airspace. And that set me wondering. With the recent opening to Cuba announced by President Obama, it is conceivable that a fuller liberalization will follow sometime in the the future. What then would be the impact of such liberalization on non-Cuba Caribbean tourism, in general, and Jamaican tourism, specifically. My curiosity was piqued so I set out to investigate.

According to the Jamaican Tourist Board (, there were 25 million tourist arrivals in the Caribbean in 2013, a 1.8% increase over 2012. The United States was the most important contributor, with 12.3 million of its citizens having travelled to the region in that timeframe, up 2.9% over 2012. The percentage distribution of visitors to the region is shown below.

Percent of Total
South America

The three most visited islands, ranked by frequency of visit, are Dominican Republic, Cuba, and Jamaica (It should be pointed out that Cuba is second in the ranking even though it had less than 100,000 US visitors in 2013.). Jamaica itself had 2 million stopovers in 2013, 1.8 million of whom were foreign and the remainder non-resident Jamaicans. One million of these visitors came for "liesure, recreation, and holiday."

Cuba had 2.8 million visitors in 2013 with a total spend of $2.3 billion (Jessop). Of the visitors, 92,000 were from the US (the 350,000 - 400,000 Cuban-Americans who visit Cuba annually are not included in these numbers).

Just to review, the recent Obama initiative allows the following (
  • Americans can visit Cuba for any of 12 reasons without having to obtain a special government license
  • American travelers to Cuba can bring back up to $400 worth of goods inclusive of cigars and liquor
  • Travelers can now use their debit and credit cards on the island
  • US financial institutions can open accounts at Cuban banks and enroll merchants there.
Jessop sees a number of short-term implications associated with this opening:
  • Increasing pressure on available hotel rooms
  • A concomitant upward trend in currently low-priced room rates
  • Increased investment in the hotel sector by foreign companies
  • Pressure from US legacy carriers to fly scheduled services to Cuba out of the US
  • The increased attraction of sailboats into the recently constructed Cuban marinas
  • Increasing number of calls by cruise ships
  • Rapid diversification and decentralization of Cuba's tourism product.
But these implications are associated with the current Obama initiative. A number of economists have been studying the issue of a complete elimination of the US tourist barriers -- a not-inconceivable development, given where things are headed -- both in terms of its implications for Cuba as well as for its neighbors. In commenting on Padilla's projection of the Cuban tourism industry post-Castro, Crespo estimates that his forecast of 3.2 million additional US visitors to Cuba annually would require:
  • Betweeen 98,000 and 116,000 additional hotel rooms at a cost of between $4.3 and $5.7 billion
  • Additional uplift capability to carry those visitors.
According to Crespo, it would take between 17 and 22 years to build an additional 58,000 - 76,000 rooms and this factor alone ensures a non-apocalyptic increase in US tourism to Cuba.

Romeu, in an IMF Working Paper, used a  gravity trade model to assess the outcome of US travel liberalization. His findings were as follows:
  • Liberalization would increase overall visitor arrival to the Caribbean by between 2 and 11%
  • The current budget-conscious, adventure-focused OECD visitor will be displaced by the US visitor who has lower transportation costs and demands higher levels of service
    • It is likely that these tourists will select destinations with which they might have had a former colonial relationship or some language or other cultural affinity
  • There will be a loss of US tourists for the other Caribbean countries but their losses will be offset somewhat by the redirected OECD tourists
    • Spend will be at lower levels though given the type of tourists being redirected
  • Strong tourism growth awaits some destinations while others face potential long-term decline

In the short-term, there will be a slow but steady increase in the number of US tourists visiting Cuba. Given the constraints imposed by the President, these trips will most likely be taken by culture warriors, not a core constituency for the Caribbean tourist market. In addition, these trips will be one-offs; "I was there while the country was still unspoiled."

In the longer term, however, there are significant risks for Cuba's neighbors. Its attractiveness is reinforced by the fact that it is the second-most-visited Caribbean country, even with a paltry amount of US tourists. If tourism were liberalized, and even if a large amount of US tourists visiting Cuba were first-time Caribbean visitors, there would still be some siphoning-off of "Caribbean regulars." So it is likely that Jamaica, for example, would see a decline in its US-origin visitors. And I would propose that it would be a consistent drop over a number of years as some percent of those visitors seek to "try-out" Cuba. The country would have a significant additional competitor for the US tourist dollar. And the pool of redirected OECD numbers will be split between the countries and, in addition, the per capita spend of each individual will fall below the per capita spend of the US tourist. The financial implications are evident.

In order to compete in this marketplace, the countries will have to focus on customer attraction and retention. Customer attraction will revolve around giving first-time visitors a reason to come. Cuba is a large country with a diverse array of experiences to offer to the tourist. These countries will have to map out points of interests and activities to get customers to visit their countries and to stay. For example, I have been visiting Jamaica for years now and have never been to Port Antonio. I visited there on my last trip and was blown away by the history of the area, the available activities, and its place as the home of the jerk style of cooking. These countries will have to do a better job of providing a more fulsome picture of the available areas of interest (in addition to the sun and sand and rum).

In terms of customer retention, the folks at Disney and Universal are constantly adding to the palette of attractions, giving visitors a reason to come back to Orlando again and again. These countries will have to adapt that mentality and constantly be on the lookout for additions to the "attractiveness" portfolio.

One of the reports that I read suggested that these countries partner with Cuba in order to develop packages where someone could spend three days, lets say, in Cuba and two days in another country. I do not see this happening. Cuba can easily support a tourist over seven days with the diversity in its environment and it would have no incentive to partner with these smaller countries. What would those countries bring to the table that would be of interest to Cuba when Cuba has the tourist sitting behind the wheel of a 1959 Dodge in Havana? I can't see it.

David Jessop, Cuba and Carribean Tourism,, 1/9/2015
Havana or bust: How US-Cuba Realtions will impact Tourism, knowledge,
Nicolas Crespo, Comments on "The Tourism Industry in the Caribbean after Castro" by Padilla,
Rafael Romeu, Vacation Over: Implications for the Caribbean of Opening US-Cuba Tourism, IMF Working Papaer, 7/2008.

©Wine -- Mise en abyme

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